Table I (A): Net Debt and Accumulated Deficit Table I (B): Debt Maturity Schedule
Table I (C): Medium-Term Outlook—Net Debt and Accumulated Deficit
Table I (D): Derivative Portfolio Notional Value
NET DEBT AND ACCUMULATED DEFICIT TABLE I (A)
Minister of Finance of Canada:
Canada Pension Plan Investment
Fund . . . . 13,117 12,709 11,944 10,746 10,233 10,233 Ontario Teachers’ Pension Fund . . . . 12,252 11,535 11,043 10,387 9,487 8,666 Canada Mortgage and Housing
Corporation . . . . 1,181 1,147 1,116 1,078 1,040 1,006 Public Service Pension Fund . . . . 3,535 3,446 3,331 3,200 3,052 2,886 Ontario Public Service Employees’
Union Pension Fund (OPSEU) . . . . . 1,679 1,637 1,582 1,520 1,450 1,371
Other(2) . . . . 716 657 581 356 1,081 1,063
32,480 31,131 29,597 27,287 26,343 25,225
Publicly Held Debt
Debentures and Bonds(3) . . . . 97,694 99,008 99,990 102,958 116,733 125,568 Treasury Bills . . . . 5,663 4,814 5,108 6,274 3,359 3,209 U.S. Commercial Paper(3) . . . . 1,133 959 1,566 1,515 1,134 1,134 Deposits with the Province of Ontario
Savings Office (POSO)(4). . . . 2,812 2,482 2,438 - -
-Other . . . . 458 447 447 438 745 1,611 107,760 107,710 109,549 111,185 121,971 131,522
Total Debt 140,240 138,841 139,146 138,472 148,314 156,747
Cash and Temporary Investments . . . . (6,884) (6,319) (5,773) (7,252) (8,417) (8,417) Other Net (Assets)/Liabilities(5) . . . . 1,042 (26) (1,252) 1,427 (492) (5,918) Net Debt . . . . 134,398 132,496 132,121 132,647 139,405 142,412 Tangible Capital Assets(6) . . . . - - - (13,942) (14,478) (15,246) Accumulated Deficit(7) . . . . 134,398 132,496 132,121 118,705 124,927 127,166 Source: Ontario Ministry of Finance.
(1) Includes debt issued by the Province and Government Organizations, including Ontario Electricity Financial Corporation and Ontario Municipal Economic Infrastructure Financing Authority (OMEIFA)/Ontario Strategic Infrastructure Financing Authority (OSIFA).
(2) Other non-public debt includes Ontario Municipal Employees Retirement Fund, College of Applied Arts and Technology Pension Plan, Ryerson Retirement Pension Plan, Ontario Immigrants Investor Corporation and indirect debt of school boards (the indirect debt of school boards of $891 million was incurred in 2004 to refinance the non-permanently financed debt of 55 school boards. An equivalent amount is included in Net Assets as advance payments to school boards.)
(3) All balances are expressed in Canadian dollars. The balances above reflect the effect of related derivative contracts.
(4) The Province completed the sale of POSO to Desjardins Credit Union effective March 31, 2003, with the POSO liabilities to the depositors assumed by the purchaser.
(5) Other Net (Assets)/Liabilities includes accounts receivable, loans receivable (including municipal loans by
OMEIFA/OSIFA), advances and investments in Government business enterprises, accounts payable, accrued liabilities, pensions and the elimination of the liability for power purchase agreements with non-utility generators.
(6) Starting with fiscal year 2002-03, Tangible Capital Assets are capitalized and amortized over their estimated useful lives.
In 2001-02 and prior years, the costs of Tangible Capital Assets were recognized as expenditures.
DEBT MATURITY SCHEDULE TABLE I (B)
Total(4) 118,007 21,811 3,071 3,900 1,525 148,314(5) 138,472
Debt Issued for Provincial
Purposes 94,952 17,621 3,071 3,900 1,218 120,762 112,340
OEFC Debt 23,055 4,190 - - 307 27,552 26,132
Total(5) 118,007 21,811 3,071 3,900 1,525 148,314(5) 138,472
(1) Euro includes debt issued in legacy currencies i.e., Deutsche mark, French franc and Netherlands guilders.
(2) Other Currencies comprise Australian dollar, Norwegian kroner, New Zealand dollar, Pound sterling, Swiss franc and Hong Kong dollar.
(3) The longest term to maturity is to March 1, 2045.
(4) Total for all foreign currency denominated debt as at March 31, 2004 was $30.3 billion (2003, $28.4 billion). Of that,
$27.5 billion or 90.8% (2003, $25.0 billion or 88.1%) was fully hedged to Canadian dollars.
(5) Total debt includes issues totalling $2.9 billion (2003, $3.4 billion) that have embedded options exercisable by either the Province or the bondholder under specific conditions.
MEDIUM-TERM OUTLOOK— TABLE I (C)
NET DEBT AND ACCUMULATED DEFICIT ($ Billions)
2005-06 2006-07 2007-08
Total Debt 163.8 171 177.2
Cash and Temporary Investments (8.4) (8.4) (8.4)
Other Net (Assets)/Liabilities (10.0) (14.7) (20.1)
Net Debt 145.4 147.9 148.7
Tangible Capital Assets (16.2) (17.2) (18.0)
Accumulated Deficit 129.2 130.7 130.7
DESCRIPTION OF DERIVATIVE FINANCIAL INSTRUMENTS
The table below presents a preliminary maturity schedule of the Province’s and OEFC’s derivative financial instruments, by type, based on the notional amounts of the contracts. Notional amounts represent the volume of outstanding derivative contracts, are not indicative of credit or market risk, and are not representative of actual cash flows.
The Province has sizable financing requirements, largely to refinance maturing indebtedness, which includes those of OEFC. To meet these financing requirements in the most cost-effective manner, the Province has issued a variety of debt instruments in domestic and international markets. To take advantage of favourable interest rates, the Province issues debt instruments that are repayable in several currencies other than Canadian dollars.
Derivatives are financial contracts, the value of which is derived from underlying instruments. The Province uses derivatives to hedge and to minimize interest costs. Hedges are created primarily through swaps, which are legal arrangements under which the Province agrees with another party to exchange cash flows based upon one or more notional amounts using stipulated reference interest rates for a specified period. Swaps allow the Province to offset its existing obligations and thereby effectively convert them into obligations with more desirable characteristics. Other derivative instruments used by the Province include forward foreign exchange contracts, forward rate agreements, futures, options, caps and floors.
DERIVATIVE PORTFOLIO NOTIONAL VALUE TABLE I (D)
Interim 2004 ($ Millions)
Maturity in Fiscal Year 2004-05 2005-06 2006-07 2007-08 2008-09 6-10
TOTAL 14,158 21,370 8,744 10,024 14,092 17,411 3,419 89,218 79,973
Definitions:
Notional value: represents the volume of outstanding contracts. It does not represent cash flows.
Swap: a legal arrangement, the effect of which is that each of the parties (the counterparty) takes responsibility for a financial obligation incurred by the other counterparty. An interest rate swap exchanges floating interest payments for fixed interest payments or vice versa. A cross-currency swap exchanges principal and interest payments in one currency for cash flows in another currency.
Forward foreign exchange contract: an agreement between two parties to set exchange rates in advance.
Future: a contract that confers an obligation to buy/sell a commodity at a specified price and amount on a future date.
Option: a contract whereby the buyer has the right to buy/sell a designated instrument at a specified price within a specified period of time.
Cap: a contract that allows the purchaser to cap the contractual interest rate of a liability.
Floor: a contract that allows the purchaser to protect the total rate of return of an asset.
The Province also limits its credit risk exposure on derivatives by entering into contractual agreements (master agreements) that provide for termination netting and, if applicable, payment netting with virtually all of its counterparties.